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when the homeowner sells the property for less than the full amount due on the mortgage. When a homeowner qualifies for the HAFA Short Sale, the servicer approves the Short Sale terms prior to listing the home and then accepts the payoff in full satisfaction of the mortgage.
Departments of the Treasury & Housing and Urban Development, Making Home Affordable Program - Cite This Source - This Definition- Browse Related Terms: Closing, Deed-in-Lieu of Foreclosure, fee, Foreclosure Prevention, HAFA Short Sale, Pre-foreclosure, Servicing transfer, Short Sale
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A haircut, in the financial industry, is a percentage discount that's applied informally to the market value of a stock or the face value of a bond in an attempt to account for the risk of loss that the investment poses.
So, for example, a stock with a market value of $30 may get a haircut of 20%, to $24, when an analyst or money manager tries to anticipate what is likely to happen to the price.
Similarly, when a broker-dealer calculates its net capital to meet the 15:1 ratio of debt to liquid capital permissible under Securities and Exchange Commission (SEC) rules, it typically gives volatile securities in its portfolio a haircut to reduce the potential for being in violation.
The only securities that consistently escape a haircut are US government bonds because they are considered free of default risk.
- Browse Related Terms: Accredited investor, Appreciation, Boiler room, Capital preservation, churning, Collectible, Financial pyramid, Formula investing, Haircut, Indexed annuity, Inflation-adjusted return, opportunity cost, Real interest rate, Risk, Risk Tolerance, Time value of money
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Hard assets are the tangible property of a company or partnership, such as the buildings, furniture, real estate, and other equipment it owns.
When you make a direct investment in hard assets, as you do when you invest in a direct participation program (DPP), you have an ownership interest in the actual assets rather than in shares of the corporation.
The profit, if any, that you realize from hard assets is dependent on their ability to produce revenue, as a rental property or a leased airplane might.
- Browse Related Terms: Blind pool, Hard assets, Hedge fund, Limited partner, Limited partnership, Passive income, Passive losses, Private equity, Real Estate, Venture capital (VC)
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A hardship withdrawal, also known as a hardship distribution, occurs when you take money out of your 401(k) or other qualified retirement savings plan to cover pressing financial needs.
You must qualify to withdraw by meeting the conditions your plan imposes in keeping with Internal Revenue Service (IRS) guidelines. For example, you may have to demonstrate how urgent the situation is and prove you have no other resources.
Some allowances are purchasing your primary home, covering out-of-pocket medical expenses for yourself or a dependent, and paying college tuition for yourself or a dependent.
However, if you're younger than 59 1/2, you must pay a 10% penalty plus income tax on the amount you withdraw. You also may not be permitted to contribute to the plan again for six months.
- Browse Related Terms: 529 college savings plan, 529 Plan (Prepaid Tuition Plan), 529 prepaid tuition plan, Baccalaureate bond, Certificate of Accrual on Treasury Securities (CATS), CollegeSureî CD, Coverdell Education Savings Account, Early withdrawal, Education savings account (ESA), Hardship withdrawal, Hope scholarship credit, Investment horizon, Lifetime learning credit, Prepaid college savings plan, Prepaid college tuition plan, Tax-exempt
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insurance that is generally required under mortgage contracts to pay for loss or damage to a person’s home or property.
Departments of the Treasury & Housing and Urban Development, Making Home Affordable Program - Cite This Source - This Definition- Browse Related Terms: First Mortgage, Guarantee, Hazard Insurance, Lender-Placed Insurance, Lien, mortgage, Mortgage Insurance (MI), second mortgage, Suspension
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Insurance coverage that provides compensation to the insured in case of property loss or damage.
State of Maine, Department of Professional and Financial Regulation - Cite This Source - This Definition- Browse Related Terms: Adjustable Rate Loans, Buy Down, CAP, Commitment, Credit Life & Disability Insurance, fixed-rate mortgage, Hazard Insurance/Homeowners Insurance, index, Margin, Prepayment Penalty (Mortgages), Principal, Interest, Taxes and Insurance (PITI), Variable-Rate Loans
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Head of household is an IRS filing status that you can use if you are unmarried or considered unmarried on the last day of a tax year and provide at least half the cost of maintaining a home for one or more qualifying dependents.
That may be your child, grandchild, or other relative who lives in that home for more than half the year, or a parent whether or not he or she lives in your home.
The advantage of filing as head of household is that you can take a higher standard deduction than if you filed as a single taxpayer and you owe less federal income tax than you would as a single, assuming all other details were the same.
Filing as head of household also means you qualify for certain deductions and credits that would not be available to you if you used the married filing separate returns status.
- Browse Related Terms: adjusted gross income (AGI), Alternative minimum tax (AMT), Deduction, Earned Income Credit (EIC), Exemption, Head of household, Modified adjusted gross income (MAGI), Real property tax, Tax credit
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You must meet the following requirements: 1. You are unmarried or considered unmarried on the last day of the year. 2. You paid more than half the cost of keeping up a home for the year. 3. A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). However, a dependent parent does not have to live with the taxpayer.
- Browse Related Terms: adjusted gross income (AGI), Citizen or Resident Test, dependency exemption, dependent, exemptions, filing status, foster child, Head of Household filing status, Married Filing Joint filing status, Married Filing Separate filing status, personal exemption, qualifying child, qualifying relative, Qualifying Widow(er) filing status, single filing status, standard deduction, tax deduction, tax-exempt interest income
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Health insurance covers some or all of the cost of treating an insured person's illnesses or injuries. In some cases, it pays for preventive care, such as annual physicals and diagnostic tests.
You may have health insurance as an employee benefit from your job or, if you qualify, through the federal government's Medicare or Medicaid programs.
You may also buy individual health insurance directly from an insurance company or be eligible through a plan offered by a group to which you belong. As you do with other insurance contracts, you pay premiums to purchase coverage and the insurer pays some or all of your healthcare costs, based on the terms of your contract.
Some health insurance requires that you meet an annual deductible before the insurer begins to pay. There may also be co-insurance, which is your share, on a percentage basis, of each bill, or a copayment, which is a fixed dollar amount, for each visit.
Health insurance varies significantly from plan to plan and contract to contract. Generally, most plans cover hospitalization, doctors' visits, and other skilled care. Some plans also cover some combination of prescription drugs, rehabilitation, dental care, and innovative therapies or complementary forms of treatment for serious illnesses.
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A health savings account is designed to accumulate tax-free assets to pay current and future healthcare expenses. To open an HSA, you must have a qualifying High Deductible Health Plan (HDHP) either through your employer or as an individual.
If you have an employer's plan, your contributions to the HSA are made with pretax income, and your employer may contribute as well. If you have an individual plan, you may deduct your contributions in calculating your adjusted gross income (AGI).
Congress sets an annual limit on the amount you can contribute to an HSA, which you set up with a financial institution such as a bank, brokerage firm, insurance company, or mutual fund company that offers these accounts.
No tax is due on money you withdraw from the HSA to pay qualified medical expenses such as doctor's visits, hospital care, eyeglasses, dental care, and medications for yourself, your spouse, and your dependants.
Any money that's left over in your HSA at the end of the year is rolled over and continues to accumulate tax-free earnings, which you can use for future healthcare costs.
Once you're 65, you can use the money in the HSA for non-medical expenses without paying a penalty, but you'll owe income taxes on those withdrawals. If you are younger than 65, you can also spend from your HSA on non-medical expenses, but you'll owe income taxes plus a 10% tax penalty on the amount you take out.
- Browse Related Terms: 401(k), 401(k) Plan, 403(b), 457, After-tax contribution, After-tax income, Automatic enrollment, CAP, Catch-up contribution, earned income, Employee stock ownership plan (ESOP), Excess contribution, Health Savings Account (HSA), High deductible health plan (HDHP), Highly compensated employees, Independent 401(k), Individual retirement account (IRA), Individual retirement annuity, individual retirement arrangement (IRA), Keogh plan, Matching contribution, Money purchase plan, Pretax contribution, Pretax income, Profit sharing, Recharacterization, Required beginning date (RBD), Roth 401(k), Roth IRA, Salary reduction plan, SIMPLE, Simplified employee pension plan (SEP), Tax-Deferred
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Hedge funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of alternative investment strategies.
Those might include holding both long and short positions, investing in derivatives, using arbitrage, and speculating on mergers and acquisitions. Some hedge funds use leverage, which means investing borrowed money to boost returns.
Because of the substantial risks associated with hedge funds, securities laws limit participation to accredited investors whose assets meet or exceed Securities and Exchange Commission (SEC) guidelines.
- Browse Related Terms: Blind pool, Hard assets, Hedge fund, Limited partner, Limited partnership, Passive income, Passive losses, Private equity, Real Estate, Venture capital (VC)
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Hedgers in the futures market try to offset potential price changes in the spot market by buying or selling a futures contract.
In general, they are either producers or users of the commodity or financial product underlying that contract. Their goal is to protect their profit or limit their expenses.
For example, a cereal manufacturer may want to hedge against rising wheat prices by buying a futures contract that promises delivery of September wheat at a specified price.
If, in August, the crop is destroyed, and the spot price increases, the manufacturer can take delivery of the wheat at the contract price, which will probably be lower than the market price. Or the manufacturer can trade the contract for more than the purchase price and use the extra cash to offset the higher spot price of wheat.
- Browse Related Terms: Cash settlement, Clearinghouse, Closing price, Commodity, Daily trading limit, derivative, Financial future, Fungible, Futures contract, Go long, Hedger, Open interest, Speculator, Trade date, Trading volume, Unit of trading, Weather derivative, Zero sum
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Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that you expect to perform in the opposite way.
For example, you might sell short one stock, expecting its price to drop. At the same time, you might buy a call option on the same stock as insurance against a large increase in value.
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A high deductible health plan (HDHP) requires substantially higher than average out-of-pocket expenses before the insurance company will start paying for your medical expenses.
However, the premiums for an HDHP are generally lower than the premiums for traditional fee-for-service, participating provider organization (PPO), or a health maintenance organization (HMO) plan.
The HDHP may also pay a larger percentage of your expenses once you have satisfied the deductible. If you have an HDHP, you may be eligible for a health savings account (HSA), which allows you to make tax-free withdrawals to pay for medical care that's not covered by your plan.
Money you put in an HSA or that an employer contributes to your account and that you don't spend for qualified expenses can be rolled over and used in later years.
- Browse Related Terms: 401(k), 401(k) Plan, 403(b), 457, After-tax contribution, After-tax income, Automatic enrollment, CAP, Catch-up contribution, earned income, Employee stock ownership plan (ESOP), Excess contribution, Health Savings Account (HSA), High deductible health plan (HDHP), Highly compensated employees, Independent 401(k), Individual retirement account (IRA), Individual retirement annuity, individual retirement arrangement (IRA), Keogh plan, Matching contribution, Money purchase plan, Pretax contribution, Pretax income, Profit sharing, Recharacterization, Required beginning date (RBD), Roth 401(k), Roth IRA, Salary reduction plan, SIMPLE, Simplified employee pension plan (SEP), Tax-Deferred
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High-yield bonds are bonds whose ratings from independent rating services are below investment grade.
As a result, to attract investors, issuers of high-yield bonds must pay a higher rate of interest than the rates that issuers of higher-rated bonds with the same maturity are paying. The higher rate translates to more income, which is the higher yield.
High-yield bonds may also be described, somewhat more graphically, as junk bonds.
- Browse Related Terms: Bond fund, Bond rating, Currency, Duration, Fallen angel, Gold standard, High-yield bond, Investment grade, Junk bond, Moody's Investors Service, Inc., Rating, Rating service, Risk premium
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Highly compensated employees are people whose on-the-job earnings are higher than the level the government has established to differentiate this category of worker.
In 2007, that amount is $100,000. It is increased from time to time to reflect the impact of inflation.
The major consequence of being a member of this group is that the percentage of earnings that highly compensated employees may contribute to their 401(k) or similar plan is determined by the contribution rates of other plan participants who earn less.
If lower-paid employees contribute an average of 2% or less, higher-paid employees may contribute up to twice that percentage.
If the average is 3% to 8%, higher-paid employees may contribute two percentage points more than the average. And if the average is 8% or higher, the maximum for highly compensated employees is 1.25 times that average.
- Browse Related Terms: 401(k), 401(k) Plan, 403(b), 457, After-tax contribution, After-tax income, Automatic enrollment, CAP, Catch-up contribution, earned income, Employee stock ownership plan (ESOP), Excess contribution, Health Savings Account (HSA), High deductible health plan (HDHP), Highly compensated employees, Independent 401(k), Individual retirement account (IRA), Individual retirement annuity, individual retirement arrangement (IRA), Keogh plan, Matching contribution, Money purchase plan, Pretax contribution, Pretax income, Profit sharing, Recharacterization, Required beginning date (RBD), Roth 401(k), Roth IRA, Salary reduction plan, SIMPLE, Simplified employee pension plan (SEP), Tax-Deferred
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Used to indicate that a certain amount of a member's balance may not be withdrawn until an item has been collected, or until a specific check or debit is posted.
A securities analyst's recommendation to hold appears to take a middle ground between encouraging investors to buy and suggesting that they sell.
However, in an environment where an analyst makes very few sell recommendations, you may interpret that person's hold as an indication that it is time to sell.
Hold is also half of the investment strategy known as buy and hold. In this context, it means to keep a security in your portfolio over an extended period, perhaps ten years or more.
The logic is that if you purchase an investment with long-term potential and keep it through short-term ups and downs in the marketplace, you increase the potential for building portfolio value.
- Browse Related Terms: Bottom fishing, Correction, Double bottom, Double top, Hold, Inefficient market, Momentum investing, Profit taking, Pump and dump, Put-call ratio, Short interest
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By acquiring enough voting stock in another company, a holding company, also called a parent company, can exert control over the way the target company is run without actually owning it outright.
The advantages of this approach, provided that the holding company owns at least 80% of the voting shares, are that it receives tax-free dividends if the subsidiary prospers and can write off some of the operating losses if the subsidiary falters.
Yet it is insulated to some extent from the target company's liabilities because of its shareholder status.
- Browse Related Terms: balance sheet, Common Stock, Cooperative (co-op), Cumulative voting, Holding company, Minority interest, Proxy, Proxy statement, Shareholder, Statutory voting, stock, Tracking stock, Voting right
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A holding period is the length of time you keep an investment.
In some cases, a specific holding period is required in order to qualify for some benefit. For example, you must hold US savings bonds for a minimum of five years to collect the full amount of interest that has accrued.
- Browse Related Terms: Budget, Consumer price index (CPI), Cost-of-living adjustment (COLA), Emergency fund, Holding period, Imputed interest, Savings bonds, Spending plan, US savings bond
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a program that provides opportunities for homeowners who can no longer afford to stay in their home but want to avoid foreclosure to transition to more affordable housing through a short sale or deed-in-lieu of foreclosure.
Departments of the Treasury & Housing and Urban Development, Making Home Affordable Program - Cite This Source - This Definition- Browse Related Terms: Deferred payments, Foreclosure, Home Affordable Foreclosure Alternatives Program (HAFA), Home Affordable Modification Program (HAMP), Home Affordable Refinance Program (HARP), Home Owners’ Loan Act, Loss Mitigation, Second Lien Modification Program (2MP), Trial Period or Trial Period Plan, Work Out